Item 8. Financial Statements and Supplementary Data.

Table of Contents

Report of Independent Registered Public Accounting Firm		30
Consolidated Balance Sheets		32
Consolidated Statements of Earnings		33
Consolidated Statements of Comprehensive Income		34
Consolidated Statements of Stockholders' Equity		35
Consolidated Statements of Cash Flows		36
Notes to Consolidated Financial Statements		37
Note 1. Summary of Significant Accounting Policies		37
Note 2. Net Sales and Segment Reporting		43
Note 3. Property and Leases		45
Note 4. Debt and Derivative Instruments		48
Note 5. Income Taxes		51
Note 6. Stockholders' Equity		55
Note 7. Fair Value Measurements		55
Note 8. Stock-Based Compensation		56
Note 9. Employee Benefit Plans		59
Note 10. Weighted Average Common Shares		59
Note 11. Commitments and Contingencies		59
Note 12. Quarterly Financial Data (Unaudited)		60
Note 13. Subsequent Events		60

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

The Home Depot, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying Consolidated Balance Sheets of The Home Depot, Inc. and Subsidiaries (the Company) as of February 2, 2020 and February 3, 2019, the related Consolidated Statements of Earnings, Comprehensive Income, Stockholders’ Equity, and Cash Flows for each of the fiscal years in the three‑year period ended February 2, 2020, and the related notes (collectively, the Consolidated Financial Statements). In our opinion, the Consolidated Financial Statements present fairly, in all material respects, the financial position of the Company as of February 2, 2020 and February 3, 2019, and the results of its operations and its cash flows for each of the fiscal years in the three‑year period ended February 2, 2020, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of February 2, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 25, 2020 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 1 to the Consolidated Financial Statements, the Company has changed its method of accounting for leases as of February 4, 2019 due to the adoption of Accounting Standards Update No. 2016-02, Leases (Topic 842), and related amendments.

Basis for Opinion

These Consolidated Financial Statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these Consolidated Financial Statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Consolidated Financial Statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the Consolidated Financial Statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the Consolidated Financial Statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the Consolidated Financial Statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the Consolidated Financial Statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the Consolidated Financial Statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the Consolidated Financial Statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Evaluation of the self-insurance liability

As discussed in Note 1 to the Consolidated Financial Statements, the Company is self-insured for certain losses related to general liability (including product liability), workers’ compensation, employee group medical,

and automobile claims. The Company recognizes the expected ultimate cost for claims incurred at the balance sheet date as a liability. The expected ultimate cost for claims incurred is estimated based upon an analysis of historical data and actuarial estimates determined by the Company’s third-party actuary.

We identified the evaluation of certain self-insurance liabilities as a critical audit matter, specifically those liabilities related to general liability (including product liability) and workers’ compensation. Specialized skills were required to evaluate the actuarial methods and assumptions used in determining certain self-insurance liabilities. There was a high degree of judgment required to evaluate the Company’s key assumptions such as loss development factors and the selection of ultimate losses among estimates derived using the various actuarial methods.

The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Company’s self-insurance liabilities process including controls over the review of the third-party actuarial report and the actuarial methods and key assumptions used by the actuary in determining certain self-insurance liabilities. We analyzed the key assumptions underlying the actuarial estimates by evaluating the reported claims and claims payments. We involved actuarial professionals with specialized skills and knowledge, who assisted in:

•	Assessing the actuarial methods used by the Company’s third-party actuary, for consistency with generally accepted actuarial standards and practices;

•	Evaluating the key assumptions by comparing to historical data; and

•	Developing an independent actuarial range of certain self-insurance liabilities, based on the Company’s underlying historical paid and incurred loss data, and comparing the range to the Company’s estimated liabilities.

Evaluation of gross unrecognized income tax benefits

As discussed in Notes 1 and 5 to the Consolidated Financial Statements, the Company recognizes the effect of income tax positions if those positions are more likely than not of being sustained at the largest amount that is greater than 50% likely of being realized. The Company’s tax positions are subject to examination by domestic and foreign taxing authorities and the resolution of such examinations may span multiple years. Since tax law is complex and often subject to interpretations, there is uncertainty that some of the Company’s tax positions will be sustained upon examination.

We identified the evaluation of the Company’s gross unrecognized tax benefits as a critical audit matter. Complex auditor judgment was required to evaluate the Company’s interpretation of tax law and its identification and determination of the ultimate resolution of its tax positions.

The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Company’s tax process to evaluate gross unrecognized tax benefits, including controls related to (1) interpreting tax law, (2) evaluating which of the Company’s tax positions may not be sustained upon examination, and (3) determination of the more-likely-than-not amount of the positions to be upheld. We involved tax professionals with specialized skills and knowledge, who assisted in:

•	Assessing the transfer pricing studies for compliance with applicable laws and regulations;

•	Evaluating the Company’s interpretation of tax laws by developing an independent assessment based on our understanding and interpretation of the tax laws;

•	Inspecting settlements with applicable taxing authorities, and evaluating the expiration of statutes of limitations; and

•	Analyzing the Company’s assumptions and data used to determine the amount of tax benefits to recognize as well as testing the Company’s calculations and comparing the results to the Company’s assessment.

/s/ KPMG LLP

We have served as the Company’s auditor since 1979.

Atlanta, Georgia

March 25, 2020

THE HOME DEPOT, INC.

CONSOLIDATED BALANCE SHEETS

in millions, except per share data	February 2, 2020				February 3, 2019
Assets
Current assets:
Cash and cash equivalents	$	2,133			$	1,778
Receivables, net	2,106				1,936
Merchandise inventories	14,531				13,925
Other current assets	1,040				890
Total current assets	19,810				18,529
Net property and equipment	22,770				22,375
Operating lease right-of-use assets	5,595				—
Goodwill	2,254				2,252
Other assets	807				847
Total assets	$	51,236			$	44,003
Liabilities and Stockholders’ Equity
Current liabilities:
Short-term debt	$	974			$	1,339
Accounts payable	7,787				7,755
Accrued salaries and related expenses	1,494				1,506
Sales taxes payable	605				656
Deferred revenue	2,116				1,782
Income taxes payable	55				11
Current installments of long-term debt	1,839				1,056
Current operating lease liabilities	828				—
Other accrued expenses	2,677				2,611
Total current liabilities	18,375				16,716
Long-term debt, excluding current installments	28,670				26,807
Long-term operating lease liabilities	5,066				—
Deferred income taxes	706				491
Other long-term liabilities	1,535				1,867
Total liabilities	54,352				45,881
Common stock, par value $0.05; authorized: 10,000 shares; issued: 1,786 shares at February 2, 2020 and 1,782 shares at February 3, 2019; outstanding: 1,077 shares at February 2, 2020 and 1,105 shares at February 3, 2019	89				89
Paid-in capital	11,001				10,578
Retained earnings	51,729				46,423
Accumulated other comprehensive loss	(739		)		(772		)
Treasury stock, at cost, 709 shares at February 2, 2020 and 677 shares at February 3, 2019	(65,196		)		(58,196		)
Total stockholders’ (deficit) equity	(3,116		)		(1,878		)
Total liabilities and stockholders’ equity	$	51,236			$	44,003

—————

See accompanying notes to consolidated financial statements.

THE HOME DEPOT, INC.

CONSOLIDATED STATEMENTS OF EARNINGS

in millions, except per share data	Fiscal				Fiscal				Fiscal
2019				2018				2017
Net sales	$	110,225			$	108,203			$	100,904
Cost of sales	72,653				71,043				66,548
Gross profit	37,572				37,160				34,356
Operating expenses:
Selling, general and administrative	19,740				19,513				17,864
Depreciation and amortization	1,989				1,870				1,811
Impairment loss	—				247				—
Total operating expenses	21,729				21,630				19,675
Operating income	15,843				15,530				14,681
Interest and other (income) expense:
Interest and investment income	(73		)		(93		)		(74		)
Interest expense	1,201				1,051				1,057
Other	—				16				—
Interest and other, net	1,128				974				983
Earnings before provision for income taxes	14,715				14,556				13,698
Provision for income taxes	3,473				3,435				5,068
Net earnings	$	11,242			$	11,121			$	8,630
Basic weighted average common shares	1,093				1,137				1,178
Basic earnings per share	$	10.29			$	9.78			$	7.33
Diluted weighted average common shares	1,097				1,143				1,184
Diluted earnings per share	$	10.25			$	9.73			$	7.29

—————

Fiscal 2019 and fiscal 2017 include 52 weeks. Fiscal 2018 includes 53 weeks.

See accompanying notes to consolidated financial statements.

THE HOME DEPOT, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Fiscal				Fiscal				Fiscal
in millions	2019				2018				2017
Net earnings	$	11,242			$	11,121			$	8,630
Other comprehensive income (loss):
Foreign currency translation adjustments	53				(267		)		311
Cash flow hedges, net of tax	8				53				(1		)
Other	3				8				(9		)
Total other comprehensive income (loss)	64				(206		)		301
Comprehensive income	$	11,306			$	10,915			$	8,931

—————

Fiscal 2019 and fiscal 2017 include 52 weeks. Fiscal 2018 includes 53 weeks.

See accompanying notes to consolidated financial statements.

THE HOME DEPOT, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

in millions	Fiscal				Fiscal				Fiscal
2019				2018				2017
Common Stock:
Balance at beginning of year	$	89			$	89			$	88
Shares issued under employee stock plans	—				—				1
Balance at end of year	89				89				89
Paid-in Capital:
Balance at beginning of year	10,578				10,192				9,787
Shares issued under employee stock plans	172				104				132
Stock-based compensation expense	251				282				273
Balance at end of year	11,001				10,578				10,192
Retained Earnings:
Balance at beginning of year	46,423				39,935				35,519
Cumulative effect of accounting changes	26				75				—
Net earnings	11,242				11,121				8,630
Cash dividends	(5,958		)		(4,704		)		(4,212		)
Other	(4		)		(4		)		(2		)
Balance at end of year	51,729				46,423				39,935
Accumulated Other Comprehensive Income (Loss):
Balance at beginning of year	(772		)		(566		)		(867		)
Cumulative effect of accounting changes	(31		)		—				—
Foreign currency translation adjustments	53				(267		)		311
Cash flow hedges, net of tax	8				53				(1		)
Other	3				8				(9		)
Balance at end of year	(739		)		(772		)		(566		)
Treasury Stock:
Balance at beginning of year	(58,196		)		(48,196		)		(40,194		)
Repurchases of common stock	(7,000		)		(10,000		)		(8,002		)
Balance at end of year	(65,196		)		(58,196		)		(48,196		)
Total stockholders’ (deficit) equity	$	(3,116	)		$	(1,878	)		$	1,454

—————

Fiscal 2019 and fiscal 2017 include 52 weeks. Fiscal 2018 includes 53 weeks.

See accompanying notes to consolidated financial statements.

THE HOME DEPOT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Fiscal				Fiscal				Fiscal
in millions	2019				2018				2017
Cash Flows from Operating Activities:
Net earnings	$	11,242			$	11,121			$	8,630
Reconciliation of net earnings to net cash provided by operating activities:
Depreciation and amortization	2,296				2,152				2,062
Stock-based compensation expense	251				282				273
Impairment loss	—				247				—
Changes in receivables, net	(170		)		33				139
Changes in merchandise inventories	(593		)		(1,244		)		(84		)
Changes in other current assets	(135		)		(257		)		(10		)
Changes in accounts payable and accrued expenses	68				743				352
Changes in deferred revenue	334				80				128
Changes in income taxes payable	44				(42		)		29
Changes in deferred income taxes	202				26				92
Other operating activities	184				(103		)		420
Net cash provided by operating activities	13,723				13,038				12,031
Cash Flows from Investing Activities:
Capital expenditures	(2,678		)		(2,442		)		(1,897		)
Payments for businesses acquired, net	—				(21		)		(374		)
Proceeds from sales of property and equipment	37				33				47
Other investing activities	(12		)		14				(4		)
Net cash used in investing activities	(2,653		)		(2,416		)		(2,228		)
Cash Flows from Financing Activities:
(Repayments of) proceeds from short-term debt, net	(365		)		(220		)		850
Proceeds from long-term debt, net of discounts and premiums	3,420				3,466				2,991
Repayments of long-term debt	(1,070		)		(1,209		)		(543		)
Repurchases of common stock	(6,965		)		(9,963		)		(8,000		)
Proceeds from sales of common stock	280				236				255
Cash dividends	(5,958		)		(4,704		)		(4,212		)
Other financing activities	(176		)		(26		)		(211		)
Net cash used in financing activities	(10,834		)		(12,420		)		(8,870		)
Change in cash and cash equivalents	236				(1,798		)		933
Effect of exchange rate changes on cash and cash equivalents	119				(19		)		124
Cash and cash equivalents at beginning of year	1,778				3,595				2,538
Cash and cash equivalents at end of year	$	2,133			$	1,778			$	3,595
Supplemental Disclosures:
Cash paid for income taxes	$	3,220			$	3,774			$	4,732
Cash paid for interest, net of interest capitalized	1,112				1,035				991
Non-cash capital expenditures	136				248				150

—————

Fiscal 2019 and fiscal 2017 include 52 weeks. Fiscal 2018 includes 53 weeks.

See accompanying notes to consolidated financial statements.

THE HOME DEPOT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

The Home Depot, Inc., together with its subsidiaries (the “Company,” “Home Depot,” “we,” “our” or “us”), is a home improvement retailer that sells a wide assortment of building materials, home improvement products, lawn and garden products, and décor items and provides a number of services, in stores and online. We operate in the U.S. (including the Commonwealth of Puerto Rico and the territories of the U.S. Virgin Islands and Guam), Canada, and Mexico.

Consolidation and Presentation

Our consolidated financial statements include our accounts and those of our wholly-owned subsidiaries. All significant intercompany transactions have been eliminated in consolidation. Certain amounts in prior fiscal years have been reclassified to conform with the presentation adopted in the current fiscal year. Our fiscal year is a 52- or 53-week period ending on the Sunday nearest to January 31st. Fiscal 2019 and fiscal 2017 include 52 weeks while fiscal 2018 includes 53 weeks.

Use of Estimates

We have made a number of estimates and assumptions relating to the reporting of assets and liabilities, the disclosure of contingent assets and liabilities, and reported amounts of revenues and expenses in preparing these financial statements in conformity with GAAP. Actual results could differ from these estimates.

Cash Equivalents

We consider all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. Our cash equivalents are carried at fair market value and consist primarily of money market funds.

Receivables

The components of receivables, net, follow:

in millions	February 2, 2020				February 3, 2019
Card receivables	$	778			$	696
Rebate receivables	668				660
Customer receivables	292				284
Other receivables	368				296
Receivables, net	$	2,106			$	1,936

Card receivables consist of payments due from financial institutions for the settlement of credit card and debit card transactions. Rebate receivables represent amounts due from vendors for volume and co-op advertising rebates. Customer receivables relate to credit extended directly to certain customers in the ordinary course of business. The valuation allowance related these receivables was not material to our consolidated financial statements at the end of fiscal 2019 or fiscal 2018.

Merchandise Inventories

The substantial majority of our merchandise inventories are stated at the lower of cost (first-in, first-out) or market, as determined by the retail inventory method, which is based on a number of factors such as markups, markdowns, and inventory losses (or shrink). As the inventory retail value is adjusted regularly to reflect market conditions, inventory valued using the retail method approximates the lower of cost or market. Certain subsidiaries, including retail operations in Canada and Mexico, and distribution centers, record merchandise inventories at the lower of cost or net realizable value, as determined by a cost method. These merchandise inventories represent approximately 29% of the total merchandise inventories balance. We evaluate the inventory valued using a cost method at the end of each quarter to ensure that it is carried at the lower of cost or net realizable value. The valuation allowance for merchandise inventories valued under a cost method was not material to our consolidated financial statements at the end of fiscal 2019 or fiscal 2018.

Independent physical inventory counts or cycle counts are taken on a regular basis in each store and distribution center to ensure that amounts reflected in merchandise inventories are properly stated. Shrink (or in the case of excess inventory, swell) is the difference between the recorded amount of inventory and the physical inventory. We calculate shrink based on actual inventory losses occurring as a result of physical inventory counts during each fiscal period and estimated inventory losses occurring between physical inventory counts. The estimate for shrink occurring in the interim period between physical inventory counts is calculated on a store-specific basis based on recent shrink results and current trends in the business.

Property and Equipment

Buildings, furniture, fixtures, and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives. Leasehold improvements are amortized using the straight-line method over the original term of the lease or the useful life of the improvement, whichever is shorter.

The estimated useful lives of our property and equipment follow:

	Life
Buildings	5 – 45 years
Furniture, fixtures and equipment	2 – 20 years
Leasehold improvements	5 – 45 years

We capitalize certain costs, including interest, related to construction in progress and the acquisition and development of software. Costs associated with the acquisition and development of software are amortized using the straight-line method over the estimated useful life of the software, which is three to six years. Certain development costs not meeting the criteria for capitalization are expensed as incurred.

We evaluate our long-lived assets each quarter for indicators of potential impairment. Indicators of impairment include current period losses combined with a history of losses, our decision to relocate or close a store or other location before the end of its previously estimated useful life, or when changes in other circumstances indicate the carrying amount of an asset may not be recoverable. The evaluation for long-lived assets is performed at the lowest level of identifiable cash flows, which is generally the individual store level. The assets of a store with indicators of impairment are evaluated for recoverability by comparing its undiscounted future cash flows with its carrying value. If the carrying value is greater than the undiscounted future cash flows, we then measure the asset’s fair value to determine whether an impairment loss should be recognized. If the resulting fair value is less than the carrying value, an impairment loss is recognized for the difference between the carrying value and the estimated fair value. Impairment losses on property and equipment are recorded as a component of SG&A. When a leased location closes, we also recognize, in SG&A, the net present value of future lease obligations less estimated sublease income. Impairments and lease obligation costs on closings and relocations were not material to our consolidated financial statements in fiscal 2019, fiscal 2018, or fiscal 2017.

Leases

On February 4, 2019, we adopted the new leases standard using the modified retrospective transition method, which requires that we recognize leases differently pre- and post-adoption. See “Recently Adopted Accounting Pronouncements—ASU No. 2016-02” below for more information.

We categorize leases at their inception as either operating or finance leases. Lease agreements cover certain retail locations, office space, warehouse and distribution space, equipment, and vehicles. Operating leases are included in operating lease right-of-use assets, current operating lease liabilities, and long-term operating lease liabilities in our consolidated balance sheets. Finance leases are included in net property and equipment, current installments of long-term debt, and long-term debt, excluding current installments in our consolidated balance sheets.

Leased assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. We use a secured incremental borrowing rate as the discount rate for present value of lease payments when the rate implicit in the contract is not readily determinable. We determine a secured rate on a quarterly basis and update the weighted average discount rate accordingly. For operating leases with variable payments dependent upon an index or rate that commenced subsequent to adoption of ASU No. 2016-02, we apply the active index or rate as of the lease commencement date. Variable lease payments not based on an index or rate are not included in the operating lease liability as they cannot be reasonably estimated and are recognized in the period in which the obligation for those payments is incurred. Leases that have a term of twelve months or less upon commencement

date are considered short-term in nature. Accordingly, short-term leases are not included on the consolidated balance sheets and are expensed on a straight-line basis over the lease term, which commences on the date we have the right to control the property.

Goodwill

Goodwill represents the excess of purchase price over the fair value of net assets acquired. We do not amortize goodwill, but assess the recoverability of goodwill in the third quarter of each fiscal year, or more often if indicators warrant, by determining whether the fair value of each reporting unit supports its carrying value. Each fiscal year, we may assess qualitative factors to determine whether it is more likely than not that the fair value of each reporting unit is less than its carrying amount as a basis for determining whether it is necessary to complete quantitative impairment assessments, with a quantitative assessment completed at least once every three years. We completed our last quantitative assessment in fiscal 2019.

In fiscal 2019, we completed our annual assessment of the recoverability of goodwill for the U.S., Canada, and Mexico reporting units, performed through quantitative assessments, and concluded that the fair value of the reporting units substantially exceeded their respective carrying values, including goodwill. There were no impairment charges related to goodwill for fiscal 2019, fiscal 2018, or fiscal 2017.

Changes in the carrying amount of our goodwill follow:

in millions	Fiscal				Fiscal				Fiscal
2019				2018				2017
Goodwill, balance at beginning of year	$	2,252			$	2,275			$	2,093
Acquisitions (1)	—				4				164
Dispositions	—				(15		)		—
Other (2)	2				(12		)		18
Goodwill, balance at end of year	$	2,254			$	2,252			$	2,275

—————

(1)	Includes purchase price allocation adjustments.

(2)	Primarily reflects the impact of foreign currency translation.

Other Intangible Assets

We amortize the cost of other finite-lived intangible assets over their estimated useful lives, which range up to 12 years. Intangible assets with indefinite lives are tested in the third quarter of each fiscal year for impairment, or more often if indicators warrant. Intangible assets other than goodwill are included in other assets.

In fiscal 2018, we recognized a pre-tax impairment loss of $247 million for certain trade names as a result of a shift in strategy for our MRO business. Our remaining finite-lived and indefinite-lived intangibles were not material at the end of fiscal 2019 or fiscal 2018.

Debt

We record any premiums or discounts associated with an issuance of long-term debt as a direct addition or deduction to the carrying value of the related senior notes. We also record debt issuance costs associated with an issuance of long-term debt as a direct deduction to the carrying value of the related senior notes. Premium, discount, and debt issuance costs are amortized over the term of the respective notes using the effective interest rate method.

Derivatives

We use derivative financial instruments in the management of our interest rate exposure on long-term debt and our exposure to foreign currency fluctuations. For derivatives that are designated as hedges, changes in their fair values that are considered effective are either accounted for in earnings or recognized in other comprehensive income or loss until the hedged item is recognized in earnings, depending on the nature of the hedge. Derivative financial instruments that do not qualify for hedge accounting are recorded at fair value with unrealized gains or losses reported in earnings. All qualifying derivative financial instruments are recognized at their fair values in either assets or liabilities at the balance sheet date and are reported on a gross basis.

Insurance

We are self-insured for certain losses related to general liability (including product liability), workers’ compensation, employee group medical, and automobile claims. We recognize the expected ultimate cost for claims incurred (undiscounted) at the balance sheet date as a liability. The expected ultimate cost for claims incurred is estimated based upon analysis of historical data and actuarial estimates.

Our self-insurance liabilities, which are included in accrued salaries and related expenses, other accrued expenses and other long-term liabilities in the consolidated balance sheets, were $1.3 billion at February 2, 2020 and February 3, 2019.

We also maintain network security and privacy liability insurance coverage to limit our exposure to losses such as those that may be caused by a significant compromise or breach of our data security. Insurance-related expenses are included in SG&A.

Treasury Stock

Treasury stock is reflected as a reduction of stockholders’ equity at cost. We use the weighted-average purchase cost to determine the cost of treasury stock that is reissued, if any.

Net Sales

On January 29, 2018, we adopted the new revenue recognition guidance per ASU No. 2014-09 using the modified retrospective transition method, which requires that we recognize revenue differently pre- and post-adoption.

Fiscal 2018 and Subsequent Periods. We recognize revenue, net of expected returns and sales tax, at the time the customer takes possession of merchandise or when a service is performed. The liability for sales returns, including the impact to gross profit, is estimated based on historical return levels and recognized at the transaction price. We also recognize a return asset, and corresponding adjustment to cost of sales, for our right to recover the goods returned by the customer, measured at the former carrying amount of the goods, less any expected recovery cost. At each financial reporting date, we assess our estimates of expected returns, refund liabilities, and return assets.

Net sales include services revenue generated through a variety of installation, home maintenance, and professional service programs. In these programs, the customer selects and purchases material for a project, and we provide or arrange for professional installation. These programs are offered through our stores, online, and in-home sales programs. Under certain programs, when we provide or arrange for the installation of a project and the subcontractor provides material as part of the installation, both the material and labor are included in services revenue. We recognize this revenue when the service for the customer is complete, which is not materially different from recognizing the revenue over the service period as the substantial majority of our services are completed within one week.

For product sold in stores or online, payment is typically due at the point of sale. For services, payment in full is due upon completion of the job. When we receive payment from customers before the customer has taken possession of the merchandise or the service has been performed, the amount received is recorded as deferred revenue until the sale or service is complete. Such performance obligations are part of contracts with expected original durations of three months or less. We further record deferred revenue for the sale of gift cards and recognize the associated revenue upon the redemption of those gift cards in net sales. Gift card breakage income, which is our estimate of the non-redeemed gift card balance and recognized in net sales, was immaterial in fiscal 2019 and fiscal 2018.

We also have agreements with third-party service providers who directly extend credit to customers, manage our PLCC program, and own the related receivables. We have evaluated the third-party entities holding the receivables under the program and concluded that they should not be consolidated. The agreement with the primary third-party service provider for our PLCC program expires in 2028, with us having the option, but no obligation, to purchase the existing receivables at the end of the agreement. Deferred interest charges incurred for our deferred financing programs offered to these customers, interchange fees charged to us for their use of the cards, and any profit sharing with the third-party service providers are included in net sales.

Fiscal 2017. We recognize revenue, net of estimated returns and sales tax, at the time the customer takes possession of merchandise or when a service is performed. The liability for sales returns, including the impact to gross profit, is estimated based on historical return levels.

Net sales include services revenue generated through a variety of installation, home maintenance, and professional service programs. In these programs, the customer selects and purchases material for a project, and we provide or arrange professional installation. These programs are offered through our stores and in-home sales programs.

Under certain programs, when we provide or arrange the installation of a project and the subcontractor provides material as part of the installation, both the material and labor are included in services revenue. We recognize this revenue when the service for the customer is complete.

When we receive payment from customers before the customer has taken possession of the merchandise or the service has been performed, the amount received is recorded as deferred revenue until the sale or service is complete. We also record deferred revenue for the sale of gift cards and recognize this revenue upon the redemption of gift cards in net sales. Gift card breakage income, which is our estimate of the non-redeemed gift card balance and recognized as a reduction to SG&A, was immaterial in fiscal 2017.

Deferred interest charges incurred for our deferred financing programs offered to customers are included in cost of sales in fiscal 2017. Interchange fees and any profit sharing related to the PLCC program are included in SG&A in fiscal 2017.

Cost of Sales

Cost of sales includes the actual cost of merchandise sold and services performed; the cost of transportation of merchandise from vendors to our distribution network, stores, or customers; shipping and handling costs from our stores or distribution network to customers; and the operating cost and depreciation of our sourcing and distribution network and online fulfillment centers. In fiscal 2017, cost of sales also included cost of deferred interest programs offered through our PLCC programs.

Vendor Allowances

Vendor allowances primarily consist of volume rebates that are earned as a result of attaining certain purchase levels and co-op advertising allowances for the promotion of vendors’ products that are typically based on guaranteed minimum amounts with additional amounts being earned for attaining certain purchase levels. These vendor allowances are accrued as earned, with those allowances received as a result of attaining certain purchase levels accrued over the incentive period based on estimates of purchases. Volume rebates and certain co-op advertising allowances reduce the carrying cost of inventory and are recognized in cost of sales when the related inventory is sold.

Certain other co-op advertising allowances that are reimbursements of specific, incremental, and identifiable costs incurred to promote vendors’ products are recorded as an offset against advertising expense in SG&A. The co-op advertising allowances recorded as an offset to advertising expense follow:

in millions	Fiscal				Fiscal				Fiscal
2019				2018				2017
Specific, incremental, and identifiable co-op advertising allowances	$	282			$	235			$	198

Advertising Expense

Television and radio advertising production costs, along with media placement costs, are expensed when the advertisement first appears. Certain co-op advertising allowances are recorded as an offset against advertising expense. Gross advertising expense included in SG&A follows:

in millions	Fiscal				Fiscal				Fiscal
2019				2018				2017
Gross advertising expense	$	1,186			$	1,156			$	995

Stock-Based Compensation

We are currently authorized to issue incentive and nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, and deferred shares to certain of our associates and non-employee directors under certain stock incentive plans. We measure and recognize compensation expense for all share-based payment awards made to associates and non-employee directors based on estimated fair values. The value of the portion of the award that is ultimately expected to vest is recognized as stock-based compensation expense over the requisite service period or as restrictions lapse. Additional information on our stock-based payment awards is included in Note 8.

Income Taxes

Income taxes are accounted for under the asset and liability method. We provide for federal, state, and foreign income taxes currently payable, as well as for those deferred due to timing differences between reporting income and expenses for financial statement purposes versus tax purposes. Deferred tax assets and liabilities are

recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in income tax rates is recognized as income or expense in the period that includes the enactment date.

We recognize the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

We file a consolidated U.S. federal income tax return which includes certain eligible subsidiaries. Non-U.S. subsidiaries and certain U.S. subsidiaries, which are consolidated for financial reporting purposes, are not eligible to be included in our consolidated U.S. federal income tax return. Separate provisions for income taxes have been determined for these entities. For unremitted earnings of our non-U.S. subsidiaries, we are required to make an assertion regarding reinvestment or repatriation for tax purposes. For any earnings that we do not make a permanent reinvestment assertion, we recognize a provision for deferred income taxes. For earnings where we have made a permanent reinvestment assertion, no provision is recognized. See Note 5 for further discussion.

Comprehensive Income

Comprehensive income includes net earnings adjusted for certain gains and losses that are excluded from net earnings under GAAP, which consists primarily of foreign currency translation adjustments.

Foreign Currency Translation

Assets and liabilities denominated in a foreign currency are translated into U.S. dollars at the current rate of exchange on the last day of the reporting period. Revenues and expenses are translated using average exchange rates for the period and equity transactions are translated using the actual rate on the day of the transaction.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current year’s financial statement presentation.

Recently Adopted Accounting Pronouncements

ASU No. 2018-02. In February 2018, the FASB issued ASU No. 2018-02, “Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” which allows for an optional reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects as a result of the Tax Act. On February 4, 2019, we adopted ASU No. 2018-02, resulting in an increase of $31 million to retained earnings and a decrease of $31 million to accumulated other comprehensive income.

ASU No. 2017-12. In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities,” which amends the hedge accounting recognition and presentation requirements. ASU No. 2017-12 eliminates the concept of recognizing periodic hedge ineffectiveness for cash flow and net investment hedges and allows an entity to apply the shortcut method to partial-term fair value hedges of interest rate risk. On February 4, 2019, we adopted ASU No. 2017-12 with no material impact to our consolidated financial statements. We expect the impact of the adoption to be immaterial to our financial position, results of operations, and cash flows on an ongoing basis.

ASU No. 2016-02. In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” which establishes a right-of-use model and requires an entity that is a lessee to recognize the right-of-use assets and liabilities arising from leases on the balance sheets. ASU No. 2016-02 also requires disclosures about the amount, timing, and uncertainty of cash flows arising from leases. Leases will be classified as finance or operating, with classification affecting both the pattern and classification of expense recognition in the statements of earnings. This guidance was subsequently amended by ASU No. 2018-01, “Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842;” ASU No. 2018-10, “Codification Improvements to Topic 842;” and ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements.” ASU No. 2016-02 and subsequent updates require a modified retrospective transition, with the cumulative effect of transition, including initial recognition of lease assets and liabilities for existing operating leases, as of (i) the effective date or (ii) the beginning of the earliest comparative period presented. These updates also provide a number of practical expedients for implementation which we are applying, as discussed below.

On February 4, 2019 (the “effective date”), we adopted ASU No. 2016-02 and subsequent updates, collectively referred to as “Topic 842”, using the modified retrospective transition method. In addition, we adopted the package of practical expedients in transition, which permits us to not reassess our prior conclusions pertaining to lease identification, lease classification, and initial direct costs on leases that commenced prior to our adoption of the new standard. We also elected the ongoing practical expedient to not recognize operating lease right-of-use assets and operating lease liabilities related to short-term leases. We did not elect the use-of-hindsight or land easements practical expedients. For leases beginning subsequent to the effective date, we elected to not separate lease and non-lease components for certain classes of assets including real estate and certain equipment. To determine the measurement of the lease liability for operating leases with variable payments based on an index or rate that commenced prior to the adoption of Topic 842, we elected to apply the active index or rate at the effective date.

As a result of adopting Topic 842, we recognized net operating lease right-of-use assets of $5.7 billion and operating lease liabilities of $6.0 billion on the effective date. Existing prepaid rent, accrued rent, and closed store reserves were recorded as an offset to our gross operating lease right-of-use assets. The cumulative effect of the adoption resulted in an immaterial adjustment to the opening balance of retained earnings as of February 4, 2019. The standard did not have a material impact on our results of operations or cash flows.

Recently Issued Accounting Pronouncements

ASU No. 2019-12. In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” as part of its overall simplification initiative to reduce costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements. Amendments include removal of certain exceptions to the general principles of Topic 740, “Income Taxes,” and simplification in several other areas. ASU No. 2019-12 is effective for annual reporting periods beginning after December 15, 2020, and interim periods therein. We are evaluating the effect it will have on our consolidated financial statements and related disclosures and do not anticipate a material impact.

ASU No. 2018-15. In August 2018, the FASB issued ASU No. 2018-15, “Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract,” which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. ASU No. 2018-15 is effective beginning in the first quarter of fiscal 2020. Early adoption is permitted. We will adopt this standard in the first quarter of 2020. We have evaluated the effect it will have on our consolidated financial statements and related disclosures and noted no material impact.

ASU No. 2017-04. In January 2017, the FASB issued ASU No. 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” which simplifies how an entity is required to test goodwill for impairment. The amendments in ASU No. 2017-04 require goodwill impairment to be measured using the difference between the carrying amount and the fair value of the reporting unit and require the loss recognized to not exceed the total amount of goodwill allocated to that reporting unit. ASU No. 2017-04 should be applied on a prospective basis and is effective for our annual goodwill impairment tests beginning in the first quarter of fiscal 2020. Early adoption is permitted. We have evaluated the effect that ASU No. 2017-04 will have on our consolidated financial statements and related disclosures and noted no material impact.

ASU No. 2016-13. In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” which introduced an expected credit loss model for the impairment of financial assets measured at amortized cost. The model replaces the probable, incurred loss model for those assets and instead, broadens the information an entity must consider in developing its expected credit loss estimate for assets measured at amortized cost. ASU No. 2016-13 is effective beginning in the first quarter of fiscal 2020. Early adoption is permitted. We will adopt this standard in the first quarter of 2020. We have evaluated the effect it will have on our consolidated financial statements and related disclosures and noted no material impact.

Recent accounting pronouncements pending adoption not discussed above are either not applicable or are not expected to have a material impact on our consolidated financial condition, results of operations, or cash flows.

2.	NET SALES AND SEGMENT REPORTING

We currently conduct our retail operations in the U.S., Canada, and Mexico, each of which represents one of our three operating segments. Our operating segments reflect the way in which internally-reported financial information is used to make decisions and allocate resources. For disclosure purposes, we aggregate these three operating segments into one reportable segment due to their similar operating and financial characteristics and how the business is managed.

The assets of each of our operating segments primarily consist of net property and equipment and merchandise inventories. Long-lived assets, classified by geography, follow:

in millions	February 2, 2020				February 3, 2019				January 28, 2018
Long-lived assets – in the U.S.	$	20,302			$	19,930			$	19,526
Long-lived assets – outside the U.S.	2,468				2,445				2,549
Total long-lived assets	$	22,770			$	22,375			$	22,075

No sales to an individual customer accounted for more than 10% of revenue during any of the last three fiscal years. Net sales, classified by geography, follow:

	Fiscal				Fiscal				Fiscal
in millions	2019				2018				2017
Net sales – in the U.S.	$	101,333			$	99,386			$	92,413
Net sales – outside the U.S.	8,892				8,817				8,491
Net sales	$	110,225			$	108,203			$	100,904

Net sales by products and services follow:

	Fiscal				Fiscal				Fiscal
in millions	2019				2018				2017
Net sales – products	$	105,194			$	102,933			$	95,956
Net sales – services	5,031				5,270				4,948
Net sales	$	110,225			$	108,203			$	100,904

Major product lines and the related merchandising departments (and related services) follow:

Major Product Line		Merchandising Departments
Building Materials		Building Materials, Electrical/Lighting, Lumber, Millwork, and Plumbing
Décor		Appliances, Décor/Storage, Flooring, Kitchen and Bath, and Paint
Hardlines		Hardware, Indoor Garden, Outdoor Garden, and Tools

During the first quarter of fiscal 2019, we combined the Electrical and Lighting merchandising departments into one department, Electrical/Lighting, and we renamed the Décor merchandising department to Décor/Storage. These changes had no impact on our net sales presentations.

Net sales by major product lines (and related services) follow:

	Fiscal				Fiscal				Fiscal
in millions	2019				2018				2017
Building Materials	$	39,338			$	39,883			$	37,296
Décor	37,390				36,273				33,593
Hardlines	33,497				32,047				30,015
Net sales	$	110,225			$	108,203			$	100,904

—————

Note: Net sales for certain merchandising departments were reclassified in the first quarter of fiscal 2019. As a result, prior-year amounts have been reclassified to conform with the current-year presentation.

Net sales by merchandising department (and related services) follow:

	Fiscal							Fiscal							Fiscal
	2019							2018							2017
dollars in millions	Net Sales				% of Net Sales			Net Sales				% of Net Sales			Net Sales				% of Net Sales
Appliances	$	9,852			8.9	%		$	9,027			8.3	%		$	8,167			8.1	%
Building Materials	7,712				7.0			7,770				7.2			7,266				7.2
Décor/Storage	3,758				3.4			3,583				3.3			3,175				3.1
Electrical/Lighting	9,844				8.9			9,941				9.2			9,441				9.4
Flooring	7,443				6.8			7,494				6.9			6,992				6.9
Hardware	6,381				5.8			6,203				5.7			5,878				5.8
Indoor Garden	10,989				10.0			10,450				9.7			9,785				9.7
Kitchen and Bath	7,717				7.0			7,728				7.1			7,275				7.2
Lumber	7,894				7.2			8,393				7.8			7,797				7.7
Millwork	5,757				5.2			5,757				5.3			5,382				5.3
Outdoor Garden	7,564				6.9			7,259				6.7			6,984				6.9
Paint	8,620				7.8			8,441				7.8			7,984				7.9
Plumbing	8,131				7.4			8,022				7.4			7,410				7.3
Tools	8,563				7.8			8,135				7.5			7,368				7.3
Total	$	110,225			100.0	%		$	108,203			100.0	%		$	100,904			100.0	%

—————

Note: Certain percentages may not sum to totals due to rounding. Net sales for certain merchandising departments were reclassified in fiscal 2019. As a result, prior year net sales have been reclassified to conform with the current year presentation. Prior year percent of net sales data also reflects the new classifications.

3.	PROPERTY AND LEASES

Net Property and Equipment

The components of net property and equipment follow:

in millions	February 2, 2020				February 3, 2019
Land	$	8,390			$	8,363
Buildings	18,432				18,199
Furniture, fixtures, and equipment	13,666				12,460
Leasehold improvements	1,789				1,705
Construction in progress	1,005				820
Finance leases	1,578				1,392
Property and equipment, at cost	44,860				42,939
Less accumulated depreciation and finance lease amortization	22,090				20,564
Net property and equipment	$	22,770			$	22,375

Depreciation and finance lease amortization expense, including depreciation expense included in cost of sales, follows:

in millions	Fiscal				Fiscal				Fiscal
2019				2018				2017
Depreciation and finance lease amortization expense	$	2,223			$	2,076			$	1,983

Leases

We lease certain retail locations, office space, warehouse and distribution space, equipment, and vehicles. We consider various factors such as market conditions and the terms of any renewal options that may exist to determine whether we will renew or replace the lease. A substantial majority of our leases have remaining lease

terms of one to 20 years, typically with the option to extend the leases for up to five years. Some of our leases may include the option to terminate in less than five years. In the event we are reasonably certain to exercise the option to extend a lease, we will include the extended terms in the related lease assets and liabilities. Real estate taxes, insurance, maintenance, and operating expenses applicable to the leased property are generally our obligations under the lease agreements.

Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. Further, certain lease agreements include rental payments based on an index or rate and others include rental payments based on a percentage of sales.

The consolidated balance sheet location of assets and liabilities related to operating and finance leases follow:

in millions	Consolidated Balance Sheet Caption	February 2, 2020
Assets:
Operating lease assets	Operating lease right-of-use assets	$	5,595
Finance lease assets (1)	Net property and equipment	934
Total lease assets		$	6,529
Liabilities:
Current:
Operating lease liabilities	Current operating lease liabilities	$	828
Finance lease liabilities	Current installments of long-term debt	84
Long-term:
Operating lease liabilities	Long-term operating lease liabilities	5,066
Finance lease liabilities	Long-term debt, excluding current installments	1,081
Total lease liabilities		$	7,059

—————

(1)	Finance lease assets are recorded net of accumulated amortization of $644 million as of February 2, 2020*.*

The components of lease cost follow:

		Fiscal
in millions	Consolidated Statement of Earnings Caption	2019
Operating lease cost	Selling, general and administrative	$	827
Finance lease cost:
Amortization of leased assets	Depreciation and amortization	86
Interest on lease liabilities	Interest expense	92
Short-term lease cost	Selling, general and administrative	98
Variable lease cost	Selling, general and administrative	241
Sublease income	Selling, general and administrative	(14		)
Net lease cost		$	1,330

ASU 2016-02 requires that public companies use a secured incremental borrowing rate as the discount rate for the present value of lease payments when the rate implicit in the contract is not readily determinable. We determine a secured rate on a quarterly basis and update the weighted average discount rate accordingly. Lease terms and discount rates follow:

	February 2, 2020
Weighted Average Remaining Lease Term (Years):
Operating leases	10
Finance leases	12
Weighted Average Discount Rate:
Operating leases	3.1	%
Finance leases	10.4	%

The approximate future minimum lease payments under operating and finance leases at February 2, 2020 follow:

in millions	Operating Leases				Finance Leases
Fiscal 2020	$	955			$	172
Fiscal 2021	875				171
Fiscal 2022	772				170
Fiscal 2023	677				164
Fiscal 2024	579				148
Thereafter	2,822				948
Total lease payments	6,680				1,773
Less imputed interest	786				608
Present value of lease liabilities	$	5,894			$	1,165

—————

Note: Amounts presented do not include payments relating to immaterial leases excluded from the consolidated balance sheets as part of transition elections adopted upon implementation of Topic 842. Additionally, we have excluded approximately $1.9 billion of leases (undiscounted basis) that have not yet commenced. These leases will commence between 2020 and 2021 with lease terms of one to 20 years*.*

The approximate future minimum lease payments under capital and operating leases at February 3, 2019 and accounted for under previous lease guidance follow:

in millions	Operating Leases				Capital Leases
Fiscal 2019	$	976			$	150
Fiscal 2020	912				167
Fiscal 2021	792				143
Fiscal 2022	682				142
Fiscal 2023	584				137
Thereafter	3,090				970
	$	7,036			1,709
Less imputed interest					660
Net present value of capital lease obligations					1,049
Less current installments					57
Long-term capital lease obligations, excluding current installments					$	992

Other lease information follows for fiscal 2019:

	Fiscal
in millions	2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows – operating leases	$	1,003
Operating cash flows – finance leases	92
Financing cash flows – finance leases	70
Lease assets obtained in exchange for new operating lease liabilities	748
Lease assets obtained in exchange for new finance lease liabilities	186

4.	DEBT AND DERIVATIVE INSTRUMENTS

Short-Term Debt

We have commercial paper programs with an aggregate borrowing capacity of $3.0 billion. All of our short-term borrowings in fiscal 2019 and fiscal 2018 were under these commercial paper programs. In connection with these programs, we have back-up credit facilities with a consortium of banks for borrowings up to $3.0 billion, which consist of a 364-day $1.0 billion credit facility and a five-year $2.0 billion credit facility, which expires in December 2022. In December 2019, we completed the renewal of our 364-day $1.0 billion credit facility, extending the maturity from December 2019 to December 2020.

Certain information on our commercial paper programs follows:

dollars in millions	February 2, 2020				February 3, 2019
Weighted average interest rate	1.56		%		2.41		%
Balance outstanding at fiscal year-end	$	974			$	1,339
Maximum amount outstanding at any month-end	$	2,097			$	2,264
Average daily short-term borrowings	$	624			$	621

Long-Term Debt

Details of the components of our long-term debt follow:

							Carrying Amount
in millions	Interest Payable		Principal Amount				February 2, 2020				February 3, 2019
2.00% Senior notes due June 2019	Semi-annually		$	—			$	—			$	999
Floating rate senior notes due June 2020	Quarterly		500				500				499
1.80% Senior notes due June 2020	Semi-annually		750				750				749
3.95% Senior notes due September 2020	Semi-annually		500				506				499
4.40% Senior notes due April 2021	Semi-annually		1,000				999				999
2.00% Senior notes due April 2021	Semi-annually		1,350				1,348				1,345
Floating rate senior notes due March 2022	Quarterly		300				299				299
3.25% Senior notes due March 2022	Semi-annually		700				698				696
2.625% Senior notes due June 2022	Semi-annually		1,250				1,246				1,245
2.70% Senior notes due April 2023	Semi-annually		1,000				998				997
3.75% Senior notes due February 2024	Semi-annually		1,100				1,095				1,094
3.35% Senior notes due September 2025	Semi-annually		1,000				996				995
3.00% Senior notes due April 2026	Semi-annually		1,300				1,290				1,288
2.125% Senior notes due September 2026	Semi-annually		1,000				989				987
2.80% Senior notes due September 2027	Semi-annually		1,000				1,007				981
3.90% Senior notes due December 2028	Semi-annually		1,000				1,059				1,005
2.95% Senior notes due June 2029	Semi-annually		1,750				1,797				—
5.875% Senior notes due December 2036	Semi-annually		3,000				2,953				2,951
5.40% Senior notes due September 2040	Semi-annually		500				495				495
5.95% Senior notes due April 2041	Semi-annually		1,000				989				989
4.20% Senior notes due April 2043	Semi-annually		1,000				989				989
4.875% Senior notes due February 2044	Semi-annually		1,000				979				979
4.40% Senior notes due March 2045	Semi-annually		1,000				978				977
4.25% Senior notes due April 2046	Semi-annually		1,600				1,585				1,585
3.90% Senior notes due June 2047	Semi-annually		1,150				1,144				738
4.50% Senior notes due December 2048	Semi-annually		1,500				1,462				1,462
3.125% Senior notes due December 2049	Semi-annually		1,250				1,221				—
3.50% Senior notes due September 2056	Semi-annually		1,000				972				972
Total senior notes			$	29,500			29,344				26,814
Finance lease obligations; payable in varying installments through January 31, 2055							1,165				1,049
Total long-term debt							30,509				27,863
Less current installments of long-term debt							1,839				1,056
Long-term debt, excluding current installments							$	28,670			$	26,807

January 2020 Issuance. In January, we issued two tranches of senior notes.

•

The first tranche consisted of $750 million of 2.95% senior notes due June 15, 2029 (the “2029 notes”) at a premium of $32 million. The 2029 notes form a single series with the Company’s $1.0 billion 2.95% senior notes due June 15, 2029 that were issued in June 2019 and have the same terms. The aggregate principal amount outstanding of the Company’s senior notes due June 15, 2029 is $1.8 billion. Interest on the 2029 notes is due semi-annually on June 15 and December 15 of each year, beginning June 15, 2020, with interest accruing from December 15, 2019.

•	The second tranche consisted of $1.3 billion of 3.125% senior notes due December 15, 2049 (the “2049 notes”) at a discount of $16 million (together with the 2029 notes, the “January 2020 issuance”). Interest on the 2049 notes is due semi-annually on June 15 and December 15 of each year, beginning June 15, 2020.

•	Issuance costs totaled $17 million. The net proceeds of the January 2020 issuance will be used for general corporate purposes, including repurchases of common stock.

June 2019 Issuance. In June 2019, we issued two tranches of senior notes.

•	The first tranche consisted of $1.0 billion of 2.95% senior notes due June 15, 2029 at a discount of $6 million. Interest on these notes is due semi-annually on June 15 and December 15 of each year, beginning December 15, 2019.

•

The second tranche consisted of $400 million of 3.90% senior notes due June 15, 2047 (the “2047 notes”) at a premium of $10 million (together with the $1.0 billion of 2.95% senior notes due June 15, 2029, the “June 2019 issuance”). The 2047 notes form a single series with the Company’s $750 million 3.90% senior notes due June 15, 2047 that were issued in June 2017, and have the same terms. The aggregate principal amount outstanding of the Company’s senior notes due June 15, 2047 is $1.2 billion. Interest on the 2047 notes is due semi-annually on June 15 and December 15 of each year, beginning December 15, 2019, with interest accruing from June 15, 2019.

•	Issuance costs totaled $10 million. The net proceeds of the June 2019 issuance were used to repay the Company’s 2.00% senior notes that matured on June 15, 2019 and for general corporate purposes, including repurchases of common stock.

December 2018 Issuance. In December 2018, we issued four tranches of senior notes.

•

The first tranche consisted of $300 million of floating rate senior notes due March 1, 2022 (the “2022 floating rate notes”). The 2022 floating rate notes bear interest at a variable rate determined quarterly equal to the three-month LIBOR plus 31 basis points. Interest on the 2022 floating rate notes is due quarterly on March 1, June 1, September 1, and December 1 of each year, beginning March 1, 2019.

•	The second tranche consisted of $700 million of 3.25% senior notes due March 1, 2022 (the “2022 notes”) at a discount of $2 million. Interest on the 2022 notes is due semi-annually on March 1 and September 1 of each year, beginning March 1, 2019.

•	The third tranche consisted of $1.0 billion of 3.90% senior notes due December 6, 2028 (the “2028 notes”) at a discount of $7 million. Interest on the 2028 notes is due semi-annually on June 6 and December 6 of each year, beginning June 6, 2019.

•	The fourth tranche consisted of $1.5 billion of 4.50% senior notes due December 6, 2048 (the “2048 notes”) at a discount of $25 million (together with the 2022 floating rate notes, the 2022 notes and the 2028 notes, the “December 2018 issuance”). Interest on the 2048 notes is due semi-annually on June 6 and December 6 of each year, beginning June 6, 2019.

•	Issuance costs totaled $22 million. The net proceeds of the December 2018 issuance were used for general corporate purposes, including repurchases of common stock.

Redemption. All of our senior notes, other than our outstanding floating rate notes, may be redeemed by us at any time, in whole or in part, at the redemption price plus accrued interest up to the redemption date. With respect to the 1.80% 2020 notes, the 3.25% 2022 notes, and the 5.875% 2036 notes, the redemption price is equal to the greater of (1) 100% of the principal amount of the notes to be redeemed, or (2) the sum of the present values of the remaining scheduled payments of principal and interest on the notes to be redeemed that would be due after the related redemption date. With respect to all other notes, the redemption price is equal to the greater of (1) 100% of the principal amount of the notes to be redeemed, or (2) the sum of the present values of the remaining scheduled payments of principal and interest to the Par Call Date, as defined in the respective notes. Additionally, if a Change in Control Triggering Event occurs, as defined in the notes, holders of all notes have the right to require us to redeem those notes at 101% of the aggregate principal amount of the notes plus accrued interest up to the redemption date.

We are generally not limited under the indentures governing the notes in our ability to incur additional indebtedness or required to maintain financial ratios or specified levels of net worth or liquidity. The indentures governing the notes contain various customary covenants; however, none are expected to impact our liquidity or capital resources.

Maturities of Long-Term Debt. Our long-term debt maturities, excluding finance leases, follow:

in millions	Principal
Fiscal 2020	$	1,750
Fiscal 2021	2,350
Fiscal 2022	2,250
Fiscal 2023	1,000
Fiscal 2024	1,100
Thereafter	21,050
Total	$	29,500

Derivative Instruments

We use derivative financial instruments from time to time in the management of our interest rate exposure on long-term debt and our exposure on foreign currency fluctuations.

We had outstanding interest rate swap agreements with combined notional amounts of $2.1 billion at February 2, 2020 and $1.3 billion at February 3, 2019. These agreements were accounted for as fair value hedges that swap fixed for variable rate interest to hedge changes in the fair values of certain senior notes. The fair values of these agreements were $120 million at February 2, 2020 and not material at February 3, 2019.

We had outstanding cross currency swap agreements with a combined notional amount of $326 million at February 3, 2019, accounted for as cash flow hedges, to hedge foreign currency fluctuations on certain intercompany debt. The approximate fair values of these agreements were assets of $121 million at February 3, 2019, which were the estimated amounts we would have received to settle the agreements and were included in other assets. These cross currency swap agreements settled during fiscal 2019, resulting in a gain of $118 million.

We also had outstanding foreign currency forward contracts, accounted for as cash flow hedges, which hedge the variability of forecasted cash flows associated with certain payments made in our foreign operations. At February 2, 2020 and February 3, 2019, the notional amounts and the fair values of these agreements were not material.

At February 2, 2020, we had outstanding foreign currency forward contracts, accounted for as net investment hedges, with a combined notional amount of $1.2 billion. These agreements hedge against foreign currency exposure on our net investment in certain subsidiaries. At February 2, 2020, the fair values of these agreements were not material.

5.	INCOME TAXES

Tax Reform

On December 22, 2017, the U.S. enacted comprehensive tax legislation with the Tax Act, making broad and complex changes to U.S. tax law, including lowering the U.S. corporate income tax rate to 21%, transitioning to a modified territorial system, and providing for current expensing of certain qualifying capital expenditures.

We have elected to pay our transition tax over the eight-year period provided in the Tax Act. As of February 2, 2020, the remaining balance of our transition tax obligation was $14 million.

The Tax Act also created a new requirement that certain income (referred to as global intangible low-taxed income or “GILTI”) earned by controlled foreign corporations, or CFCs, must be included currently in the gross income of the CFCs’ U.S. shareholder. We have elected to account for GILTI in the period the tax is incurred; as such, the Company has not recorded any GILTI-related deferred taxes.

We expect additional regulatory guidance and technical clarifications from the U.S. Department of the Treasury and IRS clarifying certain provisions of the Tax Act within the next 12 months. When additional guidance is issued, we will recognize the related tax impact in the quarter of enactment.

Provision for Income Taxes

Our earnings before the provision for income taxes follow:

in millions	Fiscal				Fiscal				Fiscal
2019				2018				2017
U.S.	$	13,770			$	13,456			$	12,682
Foreign	945				1,100				1,016
Total	$	14,715			$	14,556			$	13,698

Our provision for income taxes follows:

in millions	Fiscal				Fiscal				Fiscal
2019				2018				2017
Current:
Federal	$	2,370			$	2,495			$	4,128
State	572				544				499
Foreign	340				372				331
Total current	3,282				3,411				4,958
Deferred:
Federal	259				67				(67		)
State	(72		)		1				89
Foreign	4				(44		)		88
Total deferred	191				24				110
Provision for income taxes	$	3,473			$	3,435			$	5,068

Our combined federal, state, and foreign effective tax rates follow:

	Fiscal			Fiscal			Fiscal
	2019			2018			2017
Combined federal, state, and foreign effective tax rates	23.6	%		23.6	%		37.0	%

The reconciliation of our provision for income taxes at the federal statutory rates of 21% for fiscal 2019, 21% for fiscal 2018, and approximately 34% for fiscal 2017 to the actual tax expense follows:

in millions	Fiscal				Fiscal				Fiscal
2019				2018				2017
Income taxes at federal statutory rate	$	3,090			$	3,057			$	4,648
State income taxes, net of federal income tax benefit	395				443				369
Tax on mandatory deemed repatriation	—				(62		)		400
Other, net	(12		)		(3		)		(349		)
Total	$	3,473			$	3,435			$	5,068

Deferred Taxes

The tax effects of temporary differences that give rise to significant portions of our deferred tax assets and deferred tax liabilities follow:

in millions	February 2, 2020				February 3, 2019
Assets:
Deferred compensation	$	169			$	183
Accrued self-insurance liabilities	285				298
State income taxes	100				96
Non-deductible reserves	156				231
Net operating losses	70				17
Lease liabilities	1,536				—
Other	135				116
Total deferred tax assets	2,451				941
Valuation allowance	—				—
Total deferred tax assets after valuation allowance	2,451				941
Liabilities:
Merchandise inventories	(26		)		(9		)
Property and equipment	(1,107		)		(893		)
Goodwill and other intangibles	(195		)		(179		)
Right-of-use assets	(1,458		)		—
Other	(232		)		(230		)
Total deferred tax liabilities	(3,018		)		(1,311		)
Net deferred tax liabilities	$	(567	)		$	(370	)

Our noncurrent deferred tax assets and noncurrent deferred tax liabilities, netted by tax jurisdiction, follow:

in millions	February 2, 2020				February 3, 2019
Other assets	$	139			$	121
Deferred income taxes	(706		)		(491		)
Net deferred tax liabilities	$	(567	)		$	(370	)

We believe that the realization of the deferred tax assets is more likely than not, based upon the expectation that we will generate the necessary taxable income in future periods.

At February 2, 2020, we had federal, state, and foreign net operating loss carryforwards available to reduce future taxable income, expiring at various dates beginning in 2020 to 2038. We have concluded that it is more likely than not that the tax benefits related to the federal, state, and foreign net operating losses will be realized.

Reinvestment of Unremitted Earnings

Substantially all of our current year foreign cash flows in excess of working capital and cash needed for strategic investments are not intended to be indefinitely reinvested offshore. Therefore, the tax effects of repatriation (including applicable state and local taxes and foreign withholding taxes) of such cash flows have been provided for in the accompanying consolidated statements of earnings. We intend to reinvest substantially all of the approximately $3 billion of non-cash unremitted earnings of our non-U.S. subsidiaries indefinitely. Accordingly, no provision for state and local taxes or foreign withholding taxes was recorded on these unremitted earnings in the accompanying consolidated statements of earnings. It is impracticable for us to determine the amount of unrecognized deferred tax liabilities on these indefinitely reinvested earnings due to the complexities associated with the hypothetical calculation.

Tax Return Examination Status

Our income tax returns are routinely examined by U.S. federal, state and local, and foreign tax authorities. With few exceptions, as of February 2, 2020, the Company is no longer subject to U.S. federal examinations by tax authorities for years before fiscal 2010. Our U.S. federal tax returns for fiscal years 2010 through 2014 and 2016 to 2018 are currently under examination by the IRS. With respect to the fiscal years 2010 to 2014, the IRS has issued a proposed adjustment relating to transfer pricing between our entities in the U.S. and China. We are defending our position using all available remedies including bi-lateral relief. There are also ongoing U.S. state and local audits and other foreign audits covering fiscal years 2007 through 2018. We do not expect the results from any ongoing income tax audit to have a material impact on our consolidated financial condition, results of operations, or cash flows.

Over the next twelve months, it is reasonably possible that the resolution of federal and state tax examinations could reduce our unrecognized tax benefits by $25 million. Final settlement of these audit issues may result in payments that are more or less than this amount, but we do not anticipate the resolution of these matters will result in a material change to our consolidated financial condition or results of operations.

Unrecognized Tax Benefits

Reconciliations of the beginning and ending amount of our gross unrecognized tax benefits follow:

in millions	Fiscal				Fiscal				Fiscal
2019				2018				2017
Unrecognized tax benefits balance at beginning of fiscal year	$	494			$	637			$	659
Additions based on tax positions related to the current year	96				91				74
Additions for tax positions of prior years	82				100				15
Reductions for tax positions of prior years	(147		)		(245		)		(93		)
Reductions due to settlements	(13		)		(66		)		(1		)
Reductions due to lapse of statute of limitations	(39		)		(23		)		(17		)
Unrecognized tax benefits balance at end of fiscal year	$	473			$	494			$	637

Unrecognized tax benefits that if recognized would affect our annual effective income tax rate on net earnings were $407 million at February 2, 2020; $398 million at February 3, 2019; and $483 million at January 28, 2018.

Interest and Penalties

Net adjustments to accruals for interest and penalties associated with uncertain tax positions resulted in a benefit of $14 million in fiscal 2019, a benefit of $33 million in fiscal 2018 and expenses of $24 million in fiscal 2017. Interest and penalties are included in interest expense and SG&A, respectively.

Our total accrued interest and penalties follow:

in millions	February 2, 2020				February 3, 2019
Total accrued interest and penalties	$	87			$	101

6.	STOCKHOLDERS’ EQUITY

Stock Rollforward

A reconciliation of the number of shares of our common stock follows:

in millions	Fiscal			Fiscal			Fiscal
2019			2018			2017
Common stock:
Balance at beginning of year	1,782			1,780			1,776
Shares issued under employee stock plans	4			2			4
Balance at end of year	1,786			1,782			1,780
Treasury stock:
Balance at beginning of year	(677	)		(622	)		(573	)
Repurchases of common stock	(32	)		(55	)		(49	)
Balance at end of year	(709	)		(677	)		(622	)
Shares outstanding at end of year	1,077			1,105			1,158

Annual per share cash dividends follow:

	Fiscal				Fiscal				Fiscal
2019				2018				2017
Cash dividends per share	$	5.44			$	4.12			$	3.56

Accelerated Share Repurchase Agreements

We enter into ASR agreements from time to time with third-party financial institutions to repurchase shares of our common stock. Under an ASR agreement, we pay a specified amount to the financial institution and receive an initial delivery of shares. This initial delivery of shares represents the minimum number of shares that we may receive under the agreement. Upon settlement of the ASR agreement, the financial institution delivers additional shares, with the final number of shares delivered determined with reference to the volume weighted average price per share of our common stock over the term of the agreement, less a negotiated discount. The transactions are accounted for as equity transactions and are included in treasury stock when the shares are received, at which time there is an immediate reduction in the weighted average common shares calculation for basic and diluted earnings per share.

The terms of each ASR agreement entered into during the last three fiscal years, structured as outlined above, follow (in millions):

Agreement Date		Settlement Date		Agreement Amount				Initial Shares Delivered			Additional Shares Delivered			Total Shares Delivered
Q2 2017		Q2 2017		$	1,650			9.7			1.1			10.8
Q3 2017		Q4 2017		1,200				6.7			0.7			7.4
Q1 2018		Q2 2018		750				3.4			0.8			4.2
Q2 2018		Q3 2018		1,600				7.1			1.0			8.1
Q3 2019		Q4 2019		820				3.2			0.4			3.6

7.	FAIR VALUE MEASUREMENTS

The fair value of an asset is considered to be the price at which the asset could be sold in an orderly transaction between unrelated knowledgeable and willing parties. A liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor, rather than the amount that would be paid to settle the liability with the creditor. Assets and liabilities recorded at fair value are measured using a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Assets and liabilities that are measured at fair value on a recurring basis follow:

	Fair Value at February 2, 2020 Using												Fair Value at February 3, 2019 Using
in millions	Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Derivative agreements – assets	$	—			$	133			$	—			$	—			$	138			$	—
Derivative agreements – liabilities	—				—				—				—				(11		)		—
Total	$	—			$	133			$	—			$	—			$	127			$	—

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

The carrying amounts of cash and cash equivalents, receivables, short-term debt, and accounts payable approximate fair value due to the short-term maturities of these financial instruments.

Long-lived assets and other intangible assets are subject to nonrecurring fair value measurement for the assessment of impairment or as the result of business acquisitions. In the third quarter of fiscal 2019, we completed our annual assessment of the recoverability of goodwill for our U.S., Canada and Mexico reporting units. The fair values of these reporting units were estimated using the present value of expected future discounted cash flows through unobservable inputs (Level 3), and the fair value exceeded the carrying value for each respective reporting unit. Accordingly, no impairment charges related to goodwill were recorded for these reporting units.

Including goodwill as described above, we did not have any material assets or liabilities that were measured at fair value on a nonrecurring basis as of February 2, 2020 or February 3, 2019, respectively.

The aggregate fair values and carrying values of our senior notes follow:

	February 2, 2020								February 3, 2019
in millions	Fair Value (Level 1)				Carrying Value				Fair Value (Level 1)				Carrying Value
Senior notes	$	34,102			$	29,344			$	28,348			$	26,814

8.	STOCK-BASED COMPENSATION

Omnibus Stock Incentive Plans

The Home Depot, Inc. Amended and Restated 2005 Omnibus Stock Incentive Plan (the “2005 Plan”) and The Home Depot, Inc. 1997 Omnibus Stock Incentive Plan (the “1997 Plan” and collectively with the 2005 Plan, the “Plans”) provide that incentive and nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, deferred shares, and other stock-based awards may be issued to certain of our associates and non-employee directors. Under the 2005 Plan, the maximum number of shares of our common stock authorized for issuance is 255 million shares, with any award other than a stock option or stock appreciation right reducing the number of shares available for issuance by 2.11 shares. At February 2, 2020, there were approximately 123 million shares available for future grants under the 2005 Plan. No additional equity awards could be issued from the 1997 Plan after the adoption of the 2005 Plan on May 26, 2005.

Stock Options. Under the terms of the Plans, incentive stock options and nonqualified stock options must have an exercise price at or above the fair market value of our stock on the date of the grant. Typically, nonqualified stock options vest at the rate of 25% per year commencing on the first or second anniversary date of the grant and expire on the tenth anniversary date of the grant. Additionally, certain stock options may become non-forfeitable upon the associate reaching age 60, provided the associate has had five years of continuous service. No incentive stock options have been issued under the 2005 Plan.

We estimate the fair value of stock option awards on the date of grant using an option-pricing model. We use the Black-Scholes option pricing model for purposes of valuing stock option awards. Our determination of fair value of stock option awards on the date of grant using the Black-Scholes option pricing model is affected by our stock price as well as assumptions regarding a number of subjective variables.

The per share weighted average fair value of stock options granted and the assumptions used in determining fair value at the date of grant using the Black-Scholes option-pricing model follow:

	Fiscal				Fiscal				Fiscal
	2019				2018				2017
Per share weighted average fair value	$	27.33			$	32.28			$	21.85
Risk-free interest rate	2.2		%		2.7		%		1.9		%
Assumed volatility	19.8		%		21.3		%		19.4		%
Assumed dividend yield	2.9		%		2.3		%		2.4		%
Assumed lives of options	5 years				5 years				5 years

The total intrinsic value of stock options exercised follow:

in millions	Fiscal				Fiscal				Fiscal
2019				2018				2017
Total intrinsic value of stock options exercised	$	241			$	138			$	223

A summary of stock option activity by number of shares and weighted average exercise price follows:

shares in thousands	Number of Shares			Weighted Average Exercise Price
Outstanding at beginning of year	6,380			$	91.78
Granted	519			190.66
Exercised	(1,649	)		58.65
Forfeited	(38	)		170.25
Outstanding at end of year	5,212			111.54

Shares of common stock issued from stock option exercises are made available from authorized and unissued common stock or treasury stock.

Details regarding outstanding and exercisable stock options at February 2, 2020 follow:

shares in thousands, dollars in millions, except for per share amounts	Number of Shares			Intrinsic Value				Weighted Average Remaining Life		Weighted Average Exercise Price
Outstanding	5,212			$	607			5 years		$	111.54
Exercisable	3,260			470				4 years		84.06

Restricted Stock and Performance Share Awards. Restrictions on the restricted stock issued under the Plans generally lapse according to one of the following schedules:

•	the restrictions on the restricted stock lapse over various periods up to five years; or

•	the restrictions on 25% of the restricted stock lapse upon the third and sixth anniversaries of the date of issuance with the remaining 50% of the restricted stock lapsing upon the associate’s attainment of age 62.

At the grant date of the award, recipients of restricted stock are granted voting rights and generally receive dividends on unvested shares, paid in the form of cash on each dividend payment date. Additionally, certain restricted stock awards may become non-forfeitable upon the associate’s attainment of age 60, provided the associate has had five years of continuous service.

We have also granted performance share awards under the Plans. These awards provide for the issuance of shares of our common stock at the end of the three-year performance cycle based upon our performance against target average ROIC and operating profit over that performance cycle. Additionally, certain awards may become non-forfeitable upon the associate’s attainment of age 60, provided the associate has had five years of continuous service and minimum performance targets are achieved. Recipients of performance share awards have no voting rights until the shares are issued following completion of the performance period. Dividend equivalents accrue on the performance shares (as reinvested shares) and are paid upon the payout of the award based upon the actual number of shares earned.

The fair value of the restricted stock and performance shares is based on the closing stock price on the date of grant and is expensed over the period during which the restrictions lapse.

Restricted Stock Units and Deferred Shares. Each restricted stock unit entitles the associate to one share of common stock to be received upon vesting up to five years after the grant date. Additionally, certain awards may become non-forfeitable upon the associate reaching age 60, provided the associate has had five years of continuous service. Recipients of restricted stock units have no voting rights until the vesting of the award. Recipients receive dividend equivalents that accrue on unvested units and are paid out in the form of additional shares of stock on the vesting date. The fair value of the restricted stock units is based on the closing stock price on the date of grant and is expensed over the period during which the units vest.

We grant awards of deferred shares to non-employee directors under the Plans. Each deferred share entitles the non-employee director to one share of common stock to be received following termination of Board service. Recipients of deferred shares have no voting rights and receive dividend equivalents that accrue and are paid out in the form of additional shares of stock upon payout of the underlying shares following termination of service. The fair value of the deferred shares is based on the closing stock price on the date of grant and is expensed immediately upon grant.

Deferred shares granted to non-employee directors follow:

	Fiscal			Fiscal			Fiscal
2019			2018			2017
Deferred shares granted to non-employee directors	22,000			26,000			27,000

Stock-Based Compensation Activity. A summary of restricted stock, performance shares, and restricted stock unit activity follows:

shares in thousands	Number of Shares			Weighted Average Grant Date Fair Value
Nonvested at beginning of year	4,242			$	150.51
Granted	1,652			186.56
Vested	(1,597	)		134.28
Forfeited	(322	)		168.09
Nonvested at end of year	3,975			170.58

Stock-based compensation expense, net of estimated forfeitures follows:

in millions	Fiscal				Fiscal				Fiscal
2019				2018				2017
Stock-based compensation expense, net	$	251			$	282			$	273

At February 2, 2020, there was $379 million of unamortized stock-based compensation expense, which is expected to be recognized over a weighted average period of two years.

The total fair value of restricted stock, performance shares, and restricted stock units that vested during the fiscal year follow:

in millions	Fiscal				Fiscal				Fiscal
2019				2018				2017
Total fair value vested	$	303			$	367			$	309

Employee Stock Purchase Plans

We maintain two ESPPs (a U.S. and a non-U.S. plan). The plan for U.S. associates is a tax-qualified plan under Section 423 of the Internal Revenue Code. The non-U.S. plan is not a Section 423 plan. At February 2, 2020, there were 18 million shares available under the U.S. plan and 19 million shares available under the non-U.S. plan. The purchase price of shares under the ESPPs is equal to 85% of the stock’s fair market value on the last day of the purchase period, which is a six-month period ending on December 31 and June 30 of each year. During fiscal 2019, there were 1 million shares purchased under the ESPPs at an average price of $180.87. Under the outstanding

ESPPs at February 2, 2020, associates have contributed $23 million to purchase shares at 85% of the stock’s fair market value on the last day of the current purchase period, June 30, 2020.

9.	EMPLOYEE BENEFIT PLANS

We maintain active defined contribution retirement plans for our associates (the “Benefit Plans”). All associates satisfying certain service requirements are eligible to participate in the Benefit Plans. We make cash contributions each payroll period up to specified percentages of associates’ contributions as approved by our Board of Directors.

We also maintain the Restoration Plan to provide certain associates deferred compensation that they would have received under the Benefit Plans as a matching contribution if not for the maximum compensation limits under the Internal Revenue Code. We fund the Restoration Plan through contributions made to a grantor trust, which are then used to purchase shares of our common stock in the open market.

Our contributions to the Benefit Plans and the Restoration Plan follow:

in millions	Fiscal				Fiscal				Fiscal
2019				2018				2017
Contributions to the Benefit Plans and the Restoration Plan	$	213			$	211			$	202

At February 2, 2020, the Benefit Plans and the Restoration Plan held a total of 6 million shares of our common stock in trust for plan participants.

10.	WEIGHTED AVERAGE COMMON SHARES

The reconciliation of our basic to diluted weighted average common shares follows:

in millions	Fiscal			Fiscal			Fiscal
2019			2018			2017
Basic weighted average common shares	1,093			1,137			1,178
Effect of potentially dilutive securities	4			6			6
Diluted weighted average common shares	1,097			1,143			1,184

Anti-dilutive securities excluded from diluted weighted average common shares	—			—			1

11.	COMMITMENTS AND CONTINGENCIES

At February 2, 2020, we had outstanding letters of credit totaling $384 million, primarily related to certain business transactions, including insurance programs, trade contracts, and construction contracts.

We are involved in litigation arising in the normal course of business. In management’s opinion, any such litigation is not expected to have a material adverse effect on our consolidated financial condition, results of operations, or cash flows.

12.	QUARTERLY FINANCIAL DATA (UNAUDITED)

A summary of our quarterly consolidated results of operations follows:

in millions, except per share data	First Fiscal Quarter				Second Fiscal Quarter				Third Fiscal Quarter				Fourth Fiscal Quarter
Fiscal 2019:
Net sales	$	26,381			$	30,839			$	27,223			$	25,782
Gross profit	9,017				10,432				9,387				8,736
Net earnings	2,513				3,479				2,769				2,481
Basic earnings per share	2.28				3.18				2.54				2.29
Diluted earnings per share	2.27				3.17				2.53				2.28
Fiscal 2018:
Net sales	$	24,947			$	30,463			$	26,302			$	26,491
Gross profit	8,617				10,365				9,151				9,027
Net earnings	2,404				3,506				2,867				2,344
Basic earnings per share	2.09				3.06				2.53				2.10
Diluted earnings per share	2.08				3.05				2.51				2.09

—————

The fourth fiscal quarter of fiscal 2018 includes 14 weeks; all other quarters in fiscal 2018 and all quarters of fiscal 2019 include 13 weeks.

13.	SUBSEQUENT EVENTS

The recent outbreak of the novel coronavirus COVID-19, which was declared a pandemic by the World Health Organization on March 11, 2020, has led to adverse impacts on the U.S. and global economies and created uncertainty regarding potential impacts to our supply chain, operations, and customer demand. The pandemic has impacted and could further impact our operations and the operations of our suppliers and vendors as a result of quarantines, facility closures, and travel and logistics restrictions. As a result of COVID-19, we have reduced store operating hours, expanded our paid time off policy for associates, and shifted certain store support operations to remote or virtual. We are also taking steps in our stores to manage foot traffic to better protect our customers and associates. In addition, in certain jurisdictions, we have had to cease sales of or delay commencement of work on certain services deemed “non-life-sustaining.” While the disruption caused by the pandemic is currently expected to be temporary, there is uncertainty regarding its duration. Therefore, while we expect the pandemic to impact our results of operations, financial position, and liquidity, we cannot reasonably estimate the impact at this time.

As a result, the Company is taking action to enhance its financial flexibility. In March 2020, we expanded our commercial paper programs from $3.0 billion to $6.0 billion and suspended our share repurchases. We also entered into an additional 364-day $3.5 billion credit facility in March 2020, which together with our existing credit facilities backs up our expanded commercial paper programs.